The timing on Donald Trump’s comments to Bloomberg about the possibility of indexing gains on investments to inflation left something to be desired.
Trump isn’t a man who cares much for optics but you’d think he would have at least considered the possibility that broaching the subject of a capital gains tax break on a day when he nixed an across-the-board pay raise for federal employees would look really, really bad.
In a Thursday letter to Speaker Paul Ryan, the President canceled pay raises scheduled for January on the excuse that the U.S. needs to be put on a more sustainable fiscal path. As detailed at length here, that’s rather hypocritical coming from a man who last December pushed through a tax cut that ballooned the deficit. Throw in the fact that Trump was all set to spend tens of millions of dollars on a Third World-style military parade and you can’t help but wonder if the President is just trolling working Americans at this point.
“After being rebuffed in an attempt to peel back the union protections of federal workers, President Trump took aim elsewhere on Thursday, invoking authority that he and other presidents have used previously, telling Congress he was canceling government pay increases scheduled for next year”, the New York Times wrote on Thursday evening, adding that “Congress has the power to override his decision and unions representing government workers called on lawmakers to do so.”
Again, this a truly heinous move for a variety of reasons. On top of the readily apparent hypocrisy of canceling pay hikes for federal employees at a time when the U.S. is borrowing to fund tax cuts for millionaires, it also betrays a wanton disregard for some of the everyday Americans Trump purports to care about.
It’s against that backdrop that Trump told Bloomberg he is in fact pondering a legally dubious move to deliver what amounts to (another) across-the-board tax cut for the wealthy.
“I’m thinking about it”, the President said, in an Oval Office interview that touched on a dizzying array of topics. “There a lot of people that love it, there a lot of people that don’t”, he continued, adding that “it’s a stimulus.”
Yeah – it’s a “stimulus” all right. A “stimulus” that amounts to bestowing a $100 billion tax cut on the wealthy.
This issue came up late last month when the New York Times reported that Steve Mnuchin is studying the possibility of changing the definition of “cost” for calculating capital gains. That would open the door for taxpayers to adjust the initial value of an asset (like stocks, for instance) for inflation upon selling.
Read more on indexing capital gains to inflation:
That would be a (hard) slap in the face to the very same everyday Americans Trump claims to represent and who came out to vote for his populist agenda in droves in 2016.
Do let this sink in. This is the Trump administration actively pondering a move to allow the wealthy to account for inflation when it comes to paying taxes on financial asset gains, at a time when real (i.e., inflation adjusted) earnings growth for America’s working class is negative.
(Bloomberg)
The reason this move would skew so heavily towards benefiting the wealthy is self-evident. The assets in question are disproportionately concentrated in the hands of households that make enough money to buy them in the first place.
Thus the benefits from rising stock prices do not accrue in a linear fashion. Rather, they accrue exponentially. And when it comes to the concentration of these assets, the juxtaposition is incredibly stark:
(Deutsche Bank)
Of course the tax cuts Trump has already passed catalyzed a buyback bonanza on Wall Street. Earlier this month, Goldman’s buyback desk upped its estimate for repurchase authorizations in 2018 to a record $1.0 trillion which, if it pans out, would amount to a 46% increase from 2017.
(Goldman)
These buybacks are driving up the value of the assets owned by the wealthy. Allowing those folks to index their windfall to inflation is tantamount to a tax cut on gains logged in part due to a previous tax cut. It is, as we put it last month, a “perpetual motion machine for exacerbating inequality”.
On top of that, it’s not even clear it would be legal. In fact, as the New York Times noted last month, George Bush considered using executive authority to do something similar, but ultimately scrapped the idea in 1992. “Mr. Bush’s Treasury Department determined that redefining ‘cost’ by regulatory fiat would be illegal – a conclusion buttressed by the Justice Department’s Office of Legal Counsel, which found that ‘cost’ means the price that was paid for something”, the Times wrote, recounting the episode.
Again, Trump is actively considering this at a time when he is ballooning the deficit to pay for the first round of tax cuts and just as he nixes pay hikes for federal employees.
Of course allowing for the indexing of capital gains to inflation will mean even less tax revenue, exacerbating the very same fiscal problems that Trump is using to justify canceling those planned pay increases.
It is truly mind-boggling.
